How to process a WorkCover payment to your employee in Xero

Inevitably, most businesses will have a situation where they have an employee who has filed a Workers Compensation claim.  Recently this happened to one of our clients.  After searching for ages as to how to go about processing the pay, we thought we would document this all here so you can follow these instructions.

Normally, the way that Workcover usually works is that they request that you pay the worker as per normal via Xero payroll.  WorkCover will then reimburse you for the approved wage.  You may be directed to pay a reduced amount as directed by Workcover, this will be detailed in their correspondence to you.

The first step is to set up a new pay item in payroll settings for the WorkCover paymentTick the box that says exempt from superannuation but do not tick the box that says exempt from PAYG Withholding.  You are not required to pay superannuation on these payments unless directly specified to do so by your employee’s award.  This wage is included in W1 as part of the taxable wages so this question needs to be changed to yes.

We would recommend mapping the WorkCover wage payment to your regular wages and salaries expense.  This makes it much easier for you at year end to reconcile your wages.

When Workcover reimburses you for the wage, please code this to a new revenue account called Work Cover Reimbursement.

The ICB has written a good document covering all of this information, you can find this here.

If you require help setting up your payroll for WorkCover purposes, feel free to call us at CloudCounting on 0426625683 or you can click here to book a training session.